[Federal Register Volume 63, Number 19 (Thursday, January 29, 1998)]
[Notices]
[Pages 4502-4504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2135]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23007; 812-10932]


American Century Capital Investment Management, Inc., et al.; 
Notice of Application

January 22, 1998.
Agency: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

Action: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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Applicants: American Century Capital Portfolios, Inc. (the 
``Company''), on behalf of its series American Century Real Estate Fund 
(the ``Fund''), American Century Investment Management, Inc. (the 
``Advisor''), RREEF Real Estate Securities Adviser, L.P. (the 
``Subadvisor''), and ROMEO America. L.L.C. (the ``New Subadvisor'').

Relevant Act Sections: Order requested under section 6(c) of the Act to 
exempt applicants from the provisions of section 15 (a) of the Act.

Summary of Application: Applicants seek an order to permit the 
implementation, without prior shareholder approval, of an investment 
subadvisory agreement (``New Subadvisory Agreement'') among the Fund, 
the Advisor and the New Subadvisor for a period of up to 120 days 
following the later of the acquisition of substantially all the assets 
of the Subadvisor by the New Subadvisor or the date on which the order 
is issued, but in no event later than May 27, 1998 (the ``Interim 
Period''). The order would also permit the New Subadvisor to receive 
from the Advisor fees earned under the New Subadvisory Agreement 
following approval by the Fund's shareholders.

Filing Dates: The application was filed on December 29, 1997. Applicant 
has agreed to file an amendment, the substance of which is incorporated 
in this notice, during the notice period.

Hearing or Notification of Hearing: An Order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on February 13, 
1998, and should be accompanied by proof of service on applicants, in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, c/o Skadden, Arps, Slate, Meagher & Flom (Illinois), 
333 West Wacker Drive, Suite 2300, Chicago, Illinois 60606, Attn: Peter 
C. Krupp.

For Further Information Contact: Lawrence W. Pisto, Senior Counsel, at 
(202) 942-0527, or Nadya B. Roytblat, Assistant Director, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. The Company is a Maryland corporation registered under the Act 
as an open-end management investment company. The Fund is a series of 
the Company. The Advisor, a Delaware corporation and an investment 
adviser registered under the Investment Advisers Act of 1940 
(``Advisers Act''), acts as the Fund's investment adviser. The 
Subadvisor, a California limited partnership and an investment adviser 
registered under the Advisers Act, acts as subadviser to the Fund under 
the terms of a subadvisory agreement (the ``Existing Subadvisory 
Agreement''). The New Subadvisor is a Delaware limited liability 
company and an indirect, wholly-owned subsidiary of ROMEO U.S. Group, 
Inc. (``ROMEO''). The applicants represent that the New Subadvisor will 
be a duly registered investment adviser under the Advisers Act because 
either (i) the New Subadvisor shall have filed a Form ADV with the SEC 
that has become effective on or before the Closing Date (as defined 
below), or (ii) in reliance on section 203(g) of the Advisers Act.
    2. The New Subadvisor has agreed to acquire and purchase 
substantially all of the assets of the Subadvisor pursuant to an 
acquisition agreement dated December 14, 1997 (the ``Acquisition''). In 
connection with the Acquisition, the Subadvisor will transfer all of 
the investment advisory agreements to which the Subadvisor is a party, 
including the Existing Subadvisory Agreement, to ROMEO. Applicants 
expect that the Acquisition will be consummated on January 27, 1998.
    3. The consummation of the Acquisition will result in an assignment 
of the Existing Subadvisory Agreement within the meaning of section 
2(a)(4) of the Act, terminating such agreement according to its terms 
and the Act. Applicants seek an exemption to permit: (i) The 
implementation, without prior shareholder approval, of the New 
Subadvisory Agreement; and (ii) the New Subadvisor to receive from the 
Advisor, subject to shareholder approval, any and all fees earned under 
the New Subadvisory Agreement during the Interim Period. The requested 
exemption would cover an Interim Period of not more than 120 days 
beginning on the later of the day the Acquisition is consummated (the 
``Closing Date''), or the issuance of the requested order and 
continuing through the date the New Subadvisory Agreement is approved 
by the shareholders of the Fund (and in any event no later than May 27, 
1998).\1\ The

[[Page 4503]]

New Subadvisory Agreement will contain substantially the same terms and 
conditions as the Existing Subadvisory Agreement, except for the dates 
of execution and termination and the inclusion of escrow arrangements.
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    \1\ Applicants state that if the Closing Date precedes issuance 
of the requested order, the New Subadvisor will serve as subadviser 
to the Fund after the Closing Date and until the issuance of the 
order in a manner consistent with its fiduciary duty. Applicants 
also state that the Advisor will be required to pay to the New 
Subadvisor, with respect to the period from the Closing Date until 
the issuance of the order, no more than the actual out-of-pocket 
cost to the New Subadvisor for providing investment subadvisory 
services to the Fund.
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    4. Applicants state that prior to the Closing Date, the Board of 
Directors of the Company (the ``Board'') will meet, in accordance with 
Section 15(c) of the Act to consider the New Subadvisory Agreement and 
to evaluate whether the terms of the New Subadvisory Agreement are in 
the best interests of the Fund and its shareholders. The Board intends 
to hold such a meeting on January 23, 1998. To the extent that the 
Board cannot meet prior to the Closing Date, applicants acknowledge 
that they may not rely on the exemptive relief requested in the 
application.
    5. Applicants propose to enter into escrow arrangements with an 
unaffiliated financial institution as escrow agent. The arrangements, 
in substance, would provide that: (i) The portion of the investment 
subadvisory fees earned by the New Subadvisor during the Interim Period 
under the New Subadvisory Agreement would be paid into an interest-
bearing escrow account maintained by the escrow agent; and (ii) the 
amounts in the escrow account (including interest earned on such 
amounts) would be paid to the New Subadvisor only upon approval by the 
Fund's shareholders of the New Subadvisory Agreement or, in the absence 
of such approval, to the Fund. Before any such release is made, the 
Board will be notified.

Applicants' Legal Analysis

    1. Section 15(a) of the Act prohibits an investment adviser from 
providing investment advisory services to a registered investment 
company except under a written contract that has been approved by a 
majority of the voting securities of the investment company. Section 
15(a) of the Act further requires that the written contract provide for 
automatic termination in event of its assignment. Section 2(a)(4) of 
the Act defines ``assignment'' to include any direct or indirect 
transfer of a contract by the assignor or of a controlling block of the 
assignor's outstanding voting securities by a security holder of the 
assignor.
    2. Applicants represent that the Acquisition will result in an 
``assignment,'' within the meaning of section 2(a)(4) of the Act, of 
the Existing Subadvisory Agreement, terminating the Agreement according 
to its terms.
    3. Rule 15a-4 provides, in pertinent part, that if an investment 
adviser's investment advisory contract with a registered investment 
company is terminated by assignment, the adviser may continue to act as 
such for 120 days under a written contract that has not been approved 
by the investment company's shareholders, if the new contract is 
approved by the board of directors of the investment company (including 
a majority of the noninterested directors), the compensation to be paid 
under the new contract does not exceed the compensation which would 
have been paid under the contract most recently approved by 
shareholders of the investment company, and neither the investment 
adviser nor any controlling person of the investment adviser ``directly 
or indirectly receive money or other benefit'' in connection with the 
assignment. Applicants cannot rely on rule 15a-4 because of the 
benefits to the members, partners and shareholders of the Subadviser 
arising from the Acquisition.
    4. Section 6(c) of the Act permits the SEC to conditionally or 
unconditionally exempt any person, security, or transaction from any 
provision of the Act or any rule or regulation thereunder, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Applicants believe that the requested relief meets this standard.
    5. Applicants note that the terms and timing of the Acquisition 
were determined by the New Subadvisor and the Subadvisor in response to 
a number of factors beyond the scope of the Act and substantially 
unrelated to the Fund. The Acquisition contemplates the sale of the 
assets of four entities, including the Subadvisor, and the assignment 
of more than 200 investment advisory and property management contracts. 
The assignment of the Existing Subadvisory Agreement constitutes a 
relatively small part of the Acquisition.
    6. During the Interim Period, the New Subadvisor will render 
investment subadvisory services to the Fund under the New Subadvisory 
Agreement, which will be substantially the same as the Existing 
Subadvisory Agreement. The applicants represent that during the Interim 
Period the Fund will receive the same scope and quality of investment 
subadvisory services provided by essentially the same personnel under 
the New Subadvisory Agreement as it receives under the Existing 
Subadvisory Agreement, in the same manner and at the same fee levels. 
Although the Subadvisor does not anticipate any change in the personnel 
providing services to the Fund, if such personnel change materially, 
the New Subadvisor will apprise and consult with the Board to make sure 
that the Board, including a majority of the noninterested Board 
members, is satisfied that the services provided during the Interim 
Period will not be diminished in scope and quality.
    7. Applicants believe that the requested relief is consistent with 
the protection of investors because it will permit continuity of 
investment subadvisory services to the Fund. Applicants submit that to 
deprive the New Subadvisor of investment advisory fees earned during 
the Interim Period would be an unduly harsh and unreasonable penalty.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by this application that:
    1. The New Subadvisory Agreement will contain substantially the 
same terms and conditions as the Existing Subadvisory Agreement, except 
for the dates of execution and termination and the inclusion of escrow 
arrangements.
    2. That portion of the investment subadvisory fee earned by the New 
Subadvisor during the Interim Period will be maintained in an interest-
bearing escrow account, and amounts in the account (including interest 
earned on such amounts) will be paid (a) to the New Subadvisor in 
accordance with the New Subadvisory Agreement, only upon approval of 
the Fund's shareholders, or (b) in the absence of such approval prior 
to the expiration of the Interim Period, to the Fund.
    3. The Fund will promptly schedule a meeting of shareholders to 
vote on the approval of the New Subadvisory Agreement to be held within 
120 days following the commencement of the Interim Period (but in no 
event later than May 27, 1998).
    4. The Subadvisor or the New Subadvisor will pay the costs of 
preparing and filing the application. The Subadvisor or the New 
Subadvisor will pay the costs relating to the solicitation and approval 
of Fund shareholders of the New Subadvisory Agreement necessitated by 
the Acquisition.
    5. The New Subadvisor will take all appropriate actions to ensure 
that the scope and quality of subadvisory and other services provided 
to the Fund by the New Subadvisor during the Interim Period will be at 
least equivalent, in the

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judgment of the Board, including a majority of the noninterested Board 
members, to the scope and quality of services previously provided. In 
the event of any material change in personnel providing material 
services pursuant to the New Subadvisory Agreement, the New Subadvisor 
will apprise and consult with the Board to make sure that the Board, 
including a majority of the noninterested members, is satisfied that 
the services provided will not be diminished in scope or quality.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2135 Filed 1-28-98; 8:45 am]
BILLING CODE 8010-01-M